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Tesla: 5 Things Ahead Of Today's Earnings Report

After the closing bell today, Tesla MotorsTesla Motors will report its first-ever profit having pre-announced that fact last month. More detailed analysis will follow later today, especially regarding any reveals on future plans. But Tesla has already been busy making news this week with CEO Elon Musk discussing “autopilots” in future cars; the Los Angeles Times and Wall Street Journal suggesting the company is a government-subsidized house of cards; and hints of future features lurking in the cars’ computers. To that end, here are five things ahead of today’s Tesla earnings:

“Autopilots” are coming someday, but not soon. A BloombergBloomberg report suggested Tesla and GoogleGoogle were discussing a partnership around Google’s self-driving cars and Tesla’s sedans. Describing the technology, Musk said, “I like the word autopilot more than I like the word self-driving. Self-driving sounds like it’s going to do something you don’t want it to do. Autopilot is a good thing to have in planes, and we should have it in cars.” He later clarified not to expect anything imminent:

Am a fan of Larry, Sergey & Google in general, but self-driving cars comments to Bloomberg were just off-the-cuff. No big announcement here— Elon Musk (@elonmusk) May 7, 2013

But some “missing” features seem likely to be added. Tesla’s reputation for selling cutting-edge vehicles is based mostly on the all-electric drivetrain and the gigantic touchscreen in the center console. What it hasn’t been based on thus far, is the high-end safety features most other luxury marques offer. A hidden menu found in the Model S suggests that adaptive cruise control, blind-spot detection and lane-departure warning are all future options for Model S. These are sort of “near autopilot” systems in that each assists the driver without coming close to a true autopilot experience. And many owners of Mercedes, Audis and other brands have come to value them greatly. Offering more options will not only allow Tesla to enhance its safety reputation, but also help increase margins.

And close attention to gross margins is the most interesting financial figure this quarter. Tesla has a target of 25% gross margins in 2013, but was below 8% last quarter. Most of that was due to shipping very few Model S sedans last year. But in the just-ended quarter, the company says is managed 4,750 shipments, which is close to 1/4 of its goal of 20,000 for the whole year. Musk cited the need to reduce overtime and work towards more normal operations in order to reach the company’s gross-margin target. While it would overstate the case to claim Tesla needs to get there this quarter, it’s definitely worth following how much progress is made.

Are green credits a sideshow or integral? A story in the Los Angeles Times suggested Tesla could earn $250 million this year in “green credits” or up to $35,000 extra on each Model S it sells. The mechanism is that manufacturers who fail to comply with California’s Zero Emission Vehicle credit would pay Tesla for credits to meet the requirements. (And this has already happened in the past). The math, however, is shaky. First, the price is set by the market, not Tesla. Second, at 20,000 vehicles and $35,000 apiece, the company would earn $700 million from credits, which no one thinks will happen. Third, Tesla itself made clear last quarter that it doesn’t believe green credits will be material going forward. So while it’s worth noting how much green-credit revenue Tesla did earn this quarter and how much it figures to gain through year end, unless we hear a different story on the conference call, the Times story seems like a hit piece, not something substantive. The Times generally takes swings at any green-energy subsidy programs, figuring out how to paint them in the least favorable light. What they might consider in the future is just noting that for the same money, there are more effective ways to reduce greenhouse emissions.

Has the sales outlook changed at all? Earlier in the year, Musk claimed the company had enough reservations to sell out through 2013. Anecdotal reports, though, have wait times shrinking as the company has increased production. Tesla is basically the only auto manufacturer selling in the U.S. that doesn’t report monthly sales figures so we can’t know independently what happened in April. But the company knows not only about April but about what’s scheduled for delivery through at least this quarter. If sales forecasts remain on track for a 20,000+ delivery year, the bull story on Tesla is going to be hard to derail. If there’s any caution in those forecasts, however, the huge number of short sellers who are betting against the company and have suffered with the stock’s 57% rise since April 1 may yet get the last laugh.

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